Twitter Inc (NYSE:TWTR) is trumping bears off and on the TWTR stock chart … but if you’re looking to make your trading account great again, using a Twitter spread in lieu of shares is definitely worth the time spent. Let me explain.
TWTR stock is back. Long pronounced dead by bears and the platform of choice for our fair nation’s Commander-in-Chief, Twitter recently issued a rousingly good report. For their part, traders bid up shares of Twitter by 7.50% in the immediate aftermath while adding 24% over the five-day period.
The way it looks now, TWTR stock could be on the verge of significantly higher prices, too.
In a nutshell, top- and bottom-line beats and higher-than-expected monthly average user (MAU) growth suggests the turnaround may finally be working. The report also confirmed Twitter is more than just a popular bully pulpit these days.
Additional support for TWTR stock bulls may be found by looking at a still bearish-leaning Street. Analysts maintain a median price target of $14.66, that’s 20% below current levels. Additionally, a “hold” rating is the overwhelming favorite among those polled and sets up the possibility of future upward revisions.
Net, net a low bar for expectations from the analyst community, as well as not-too-worrisome, but potentially helpful short interest of 11% could combine to assist today’s TWTR stock bulls to healthy gains.
TWTR Stock Daily Price Chart
Click to Enlarge Looking at the current price action in TWTR stock and the chart is giving bulls something to tweet about. Shares recently vaulted above an established downtrend channel and have held nicely in a tight consolidation above 50 and 200-day simple moving average support.
Twitter, as many are aware, has been down this road before. The road I’m speaking of is TWTR stock’s past attempts to establish an uptrend that persists. The provided daily chart’s notations over the past year reflect a volatile attempt at an uptrend this past year, only to fail bulls miserably by late 2016.
Technically, though, if you believe in breakouts (or even second or third chances), as well as the durability of lengthy double-bottoms and the sentiment factors noted above, then TWTR stock is offering traders a bullish opportunity worth consideration.
TWTR Stock Options
Considering the overall bullish view for TWTR stock and fairly inexpensive premiums right now, buying a longer-term call could be considered appropriate. After reviewing Twitter’s options, I like hedging this bet with a shorter-term vertical that’s reliant on the current small consolidation triggering a breakout soon.
Specifically, the Weekly 9 June $19/$20 bull call spread is attractive. With shares of Twitter at $18.39, the marginally out-of-the-money vertical is priced for a modest 22 cents.
Using a bull call spread on TWTR cuts down risk associated with Greeks on straight long call position. In this case, the difference in cost versus owning the $19 call is about 50%. That’s nice!
The trade-off with this vertical is profits are capped. As well, profits are generally slower to be realized versus simply owning a call contract if TWTR stock was to rally sooner rather than later.
Both constraints are due to the higher strike call that’s been sold to finance the lower strike, purchased $19 call. However, should Twitter start to rally and trade above $20 at June expiration, the vertical will maximize its spread value of $1.00 and net the trader 78 cents, or just over 350%.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.